Buyer’s remorse is never a fun feeling. But when it has to do with something as large as a mortgage, it can be downright frightening. You can’t just take a home back to the store and return it. So is there any way that you can cancel a mortgage after closing?
Canceling a Purchase Loan After Closing
Unfortunately, there’s no way to cancel a purchase loan after the closing. That’s why it’s imperative that you are 100% certain you want the home and can afford the loan. The lender is required to send you a Loan Estimate within three business days of your application for the loan. Take the time to review this document. It shows you everything you need to know about your loan including the payment, estimated taxes and insurance, estimated closing costs, and estimated cash to close.
If there’s anything you don’t like in that Loan Estimate, speak up early. Talk to the lender about the issues and see what they can do about it. If you still don’t like how they deal with the issue, it’s best to back out before they do any type of underwriting on the loan.
If it’s purely the loan you don’t like, but you still want to buy the home, you can hurry up and find another lender that has more pleasing terms. Again, read the loan documents carefully to make sure it’s a loan you are comfortable with paying for the next 15 to 30 years because you can’t just change your mind and cancel the mortgage.
Canceling a Mortgage Before the Closing
You do have the right to cancel a mortgage before a purchase closing, but this too has its ramifications. Most sellers require buyers to make an earnest money deposit. This gives the seller the idea that you have ‘good faith’ to buy the home. If you don’t buy it and the reasons don’t fall under any contingencies on the purchase contract, the seller can keep your earnest money. This covers them for the time and work that went into accepting your offer. It also compensates the seller for the time the home was off the market.
It’s a good idea to include contingencies in your purchase contract that give you a way out of the contract, should you decide not to buy the home. This way you have a better chance of receiving your earnest money back, rather than losing it to the seller.
The most common purchase contract contingencies include:
- Sale of a current home – This gives you the chance to sell your home up to a certain date. If you don’t sell it, you can back out of the contract and keep your earnest money.
- Secure mortgage financing – This gives you a specific period to secure a mortgage with very few conditions. If you don’t secure the financing by the specified date, you can back out of the contract with your earnest money in hand.
- Home inspection – This gives you a specific period to get your home inspection completed. If the report shows that there are major things wrong with the home, you can back out of the contract without losing any money.
- Home appraisal – This gives you a specific period to have the home appraised. If the appraised value comes back less than the price you offered, you can back out of the contract without losing your earnest money.
The best way to avoid having to cancel a mortgage either before or after the closing is to do your due diligence. Hire an attorney, pay for the appraisal and home inspection, and do your own legwork regarding the home and neighborhood. Make sure you also are in close contact with the mortgage lender, asking as many questions as you need to in order to get the mortgage that best suits your situation. This way you can buy a home with peace of mind and enjoy homeownership rather than feeling buyer’s remorse.